Financial Management of financial statements Essay

Financial Management of financial statements - Essay Example small Chip Computer Corporations net gross revenue target for 2005 is $9,168 which is 10% higher than what is generated in 2004. This sales compute seems reasonable based on the impressive growth posted by the company in 2004. The sales target of $9,168 is lower than the five year average of $9,330. If the company will continue to recovery from the biyearly slump, 10% even seems to be a very conservative target. It should be noted that the pre-2002 net sales reached almost $12,000. It is not impossible that the company can generate this income again.Question 1.Use the Percentage Sales method and a 20% augment in sales to forecast Micro Chips Consolidated Statement of operations for the period September 26, 2004 through September 25, 2005. Assume a 15% tax rate and restructuring cost of 2% of the new sales figure.Micro Chip Computer Corporation forecasts that its sales will increase by 20% from the current level. This w ill result to $10,000.80 gross revenue in the chase period. Since the dower sales method is used to compute the other components of the financial statement, it is assumed that the company will mystify the same expenses in proportion to sales. For example, cost of sales was previously 65.49% of total sales. In the computation for the following year, it was also assumed that the company is going to spend 65.49% of its income in cost of sales.It can be seen that apply the percentage sales method lead to some unreasonable assumptions. For one, this method assumes that expenses ar directly cogitate to the level of sales. This might seem appropriate for a merchandising firm as the cost of goods interchange often bloats with sales revenue. However, it doesnt take into account the possible changes in cost. Also, it should be noted that some of the companys costs does not often vary with sales. Fixed cost like selling, general, and administrative expenses are often decided regardless of sales level. Part B ABC FitnessActivity ratios indicate how well a company manages to turn its resources into cash, revenue or profit. In the case of ABC Fitness, three significant ratios are computed to measure its relative efficiency. The following table shows the average collection period, inventory turnover, and total assets turnover of the clientele organization. ABC Fitness has an average collection period of 10 days. Its inventory turnover is 10.23 while assets produced 1.79 propagation revenue.Average Collection Period = Current Accounts Receivables/Average Daily Sales, whereAverage Daily Sales = annual Sales/360 days= $2, 004, 016 / 360 days= $5, 560/daysAverage Collection Period=$55, 514 / $5,560/days=9.98 or 10 daysInventory upset = Cost of Goods Sold / Average Inventory= $1, 446, 733 / $141, 350= 10.23 Total Asset Turnover = Sales / Total Assets= $2, 00